Income Tax Appellate Tribunal - Chennai
Jacobi Carbons India Private Limited, ... vs Acit, Coimbatore on 12 July, 2017
आयकर अपील य अ धकरण, 'डी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
' D' BENCH : CHENNAI
ी चं पज
ू ार , लेखा सद य एवं
ी जॉज" माथन, या यक सद य के सम
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER &
SHRI GEORGE MATHAN, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.No.386/Mds./2017
नधा रण वष /Assessment year : 2012-13
M/s.Jacobi Carbons India Pvt Ltd., Vs. Assistant Commissioner of
122, Bharathi colony, First floor, Income Tax,
Peelamedu, Coimbatore 641 004. Corporate circle-2,
Coimbtore-2.
[PAN AACCJ 0987 E ]
(अपीलाथ%/Appellant) (&'यथ%/Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.Sampath Raghunathan,
Advocate
यथ क ओर से /Respondent by : Mr.Pathlavath Peerya, CIT DR
सन
ु वाई क तार$ख/Date of Hearing : 05-07-2017
घोषणा क तार$ख /Date of Pronouncement : 12-07-2017
आदे श / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER
This appeal is filed by the assessee, aggrieved by the order of the ld. Assessing Officer, Coimbatore, dated 14.12.2016 passed u/s.143(3) read with sec.144C(5) of the Act pursuant to the order of the T.P.O, Chennai, dated 29.01.2016 and the directions issued by the D.R.P, Bangalore, dated 11.11.2016.
:- 2 -: ITA No.386/Mds./2017
2. The assessee raised the following grounds of appeal.
1. Assessment and Reference to Transfer Pricing Officer are bad in law 1.1 The Deputy Commissioner of Income Tax, Corporate Circle 2, Coimbatore ('AO') erred in making a reference to the Joint Commissioner of Income-tax / Deputy Commissioner of Income Tax, (Transfer Pricing) ('TPO'), without recording an opinion that any of the conditions in section 92C(3) of the Act, were satisfied in the instant case.
1.2 On the facts and in the circumstances of the case and in law, the TPO erred in not demonstrating that the motive of the Assessee was to shift profits outside of India by manipulating the prices charged in its international transactions, which is a pre-requisite condition to make any adjustment under the provision of Chapter X of the Act.
1.3 The order passed by the AO is without jurisdiction, inter alia, insofar as it purports to give effect to an invalid order of the TPO.
1.4 The directions issued by the Ld. DRP and the order passed by the Ld. AO is without jurisdiction, inter alia, in so far as it purports to give effect to an invalid order of the Ld. TPO.
2 Determination of arm's length price by the Ld. TPO/AO and the Ld. DRP for the international transaction of sale of activated carbons to its Associated Enterprises ('AEs') 2.1 The Ld. AOl TPO erred in rejecting the contemporaneous transfer pricing documentation maintained by the Appellant and in rejecting Comparable Uncontrolled Price ('CUP') as the Most Appropriate :- 3 -: ITA No.386/Mds./2017 Method ('MAM'). The Hon'ble DRP has erred in upholding the action of Ld. TPO/AO.
2.2 The Ld. TPO/AO erred in appreciating the fact that the Appellant had undertaken a scientific search on a bonafide intention at the time of preparation of TP documentation and this was in line with the provisions of Section 92D read with Rule IOD of the Income Tax Rules, 1962 ("The Rules"). The Ld. DRP erred in upholding the actions of the TPO/AO.
2.3 The LcLAO/TPO erred in not undertaking a scientific study as prescribed under Rule 1OD and merely selected two peer companies of the Appellant after requesting the Appellant to suggest the name of the peer companies. The Ld. DRP erred in upholding the actions of the TPOIAO.
2.4 Ld. TPO/AO, using the powers conferred under section 133(6) had obtained the financials of the two peer companies which were not accessible to the Appellant while preparing its TP study wherein the Appellant had undertaken a scientific search in its TP study. The Ld. DRP erred in upholding the actions of the TPO/AO. 2.5 Without prejudice to the above, the Ld. DRP erred in not passing a speaking order on additional evidence on corroborative analysis undertaken by the Appellant using Transactional Net Margin Method ('TNMM') as the MAM. The Hon'ble Bench may please note, in the TP order for AY 2013-14, the TPO has accepted the corroborative TNMM analysis undertaken by the Appellant.
2.6 The Ld. AOITPO erred in computing the margin of the Appellant while determining the arm's length price. The Ld. DRP erred in upholding the action of the TPO/AO.
:- 4 -: ITA No.386/Mds./2017 2.7 The Ld. AOl TPO erred in appreciating the fact that, the loss incurred by the Appellant was not due to pricing of transactions with Associated Enterprises but the specific business reasons as the company is profitable during the subsequent financial years (i.e. for FY 2012-13 and FY 2013- 14).The Ld. DRP erred in upholding the actions of TPO/AO.
2.8 The Ld. AOl TPO erred in comparing established companies to the Appellant without providing appropriate adjustment to the margin of the Appellant ignoring the fact that AY 2012-13 is the first full year of commercial operation and the Appellant started making profits in the subsequent years. The same is evident from the fact that, with respect to AY 2013-14, on similar fact pattern the Ld. TPO has considered the international transaction of the Appellant at arm's length. The Ld. DRP erred in upholding the actions of TPO/AO.
3 Ld. TPO/AO and Ld. DRP erred in not providing appropriate adjustments 3.1 The Ld. AO/ TPO and Ld. DRP erred in law and on facts in not allowing appropriate adjustments under Rule 10B to account for, inter alia, differences in (a) accounting practices and (b) capacity adjustments between the Appellant and comparable companies.
3.2 The Ld. AO/ TPO erred in not providing appropriate adjustments to the margin of the Appellant, arising out of the business reason such as high raw material procurement price, high packing material price and low yield which have predominantly contributed towards the loss incurred by the Appellant during the AY 2012-13.
3.3 The Ld. DRP, even after permitting to file additional evidence and submission failed to pass a speaking order and thereby upheld the :- 5 -: ITA No.386/Mds./2017 contentions of the AO/TPO by merely stating that the Appellant has not furnished the details of packing materials of comparable companies.
3.4 The Ld. AO / TPO failed to appreciate that the Appellant could not achieve the optimum utilisation of installed capacity in AY 2012-13 and hence an adjustment to be provided to the margin of the Appellant to the effect of under-utilisation of the capacity. The Ld. DRP ignoring the fact that the TPO has obtained the financials of the company using powers conferred under section 133(6) and the Appellant did not have access to those data which were not available in the public domain at the time of preparation TP study held that no comparative information has been provided by the Appellant i.e. the relevant data pertaining to the comparable companies.
3.5 The Ld. DRP erred in not looking into the business reasons provided by the Appellant and held that the necessity for separate adjustment on the above counts are not felt when TNMM which is based on operating profit margins has been adopted as the most accurate method for comparability purpose.
3.6 The Ld. DRP without validating the adjustments due to the business reasons furnished by the Appellant erroneously held that that the second proviso to section 92C(2) takes care of the differences between the Appellant and the comparable companies and the claim of the Appellant on adjustment can't be accepted.
3.7 The Ld. DRP did not validate the analysis in connection with specific business reason for loss and impact of unutilized capacity. 3.8 On the above, Ld. DRP erroneously rejected the argument on the basis that the corresponding information regarding the comparable companies were not furnished by the Appellant.
:- 6 -: ITA No.386/Mds./2017 3.9 The Ld. DRP erroneously held that the adjustment can be given only to the margins of the comparable companies.
4. Variation of 5% from the arithmetic mean 4.1 The Ed. AO/ Ld. TPO erred in law in not granting the benefits of proviso to section 92C(2) of the Act available to the Appellant. The Ld. DRP has upheld the action of the TPO.
5. Interest under section 234B of the Act The learned AO has erred in levying interest under Section 234B of the Act of INR 32,74,790.
6. Initiation of penalty proceedings 6.1 The Appellant submits that, based on the facts and circumstances of the case, there was no basis for the Ld. AO to initiate proceedings under section 274 read with section 271 of the Act.
7. Relief 7.1 The Appellant prays that directions be given to grant all such relief arising from the above grounds and also all relief consequential thereto.
7.2 The Appellant desires leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of objections, at any time before or during the hearing of the Appeal.
7.3 Further, the Appellant prays that the adjustment in relation to transfer pricing matters made by the learned AO/ TPO and upheld by the Ld. Panel is bad in law and liable to be deleted :- 7 -: ITA No.386/Mds./2017
3. At the time of hearing, the ld.A.R primarily pleaded with regard to Ground Nos.2.2 & 2.3 as above on the reason that the AO/T.P.O had not followed the due procedure prescribed under Rule-10D so as to select the comparables and he has taken a letter dated 07.09.2015 from the assessee with regard to companies engaged in the similar lines of business and the assessee has given the details of its competitors, namely M/s.Core Carbons Pvt. Ltd and M/s.Genune Shell Carb Pvt Ltd., and on the basis of information obtained u/s.133(6) of the Act, the AO had worked out the PLI of these companies and proposed to adopt TNMM as most appropriate method. The assessee challenged this vide ground No.2.4 before the DRP that the TPO had not undertaken any scientific method to identify the comparable price and has merely selected the peer companies of the JCB India as comparable to determine the Arm's Length Price (ALP) on the international transaction of sale of activated carbons to its AEs.
3.1 Further, ld.A.R submitted that the DRP not at all given findings on this issue. On the other hand, the DRP has given findings that the TPO is justified in collecting the information :- 8 -: ITA No.386/Mds./2017 u/s.133(6) of the Act and also there is no infirmity in using the same information for the purpose of determining ALP.
4. On the other hand, ld.D.R submitted that the assessee might not have pressed the above ground before the DRP, hence it has not given the findings with regard to applicability of Rule 10D of Income Tax Rules, 1962. He relied on the order of lower authorities.
5. We have heard both the parties and perused the material on record. Admittedly, the assessee before the DRP given a letter dated 17.10.2016 before the DRP as follows:-
"Jacobi Carbons India Private Limted.
ISO 9001 2008 Certified company Registered & Factory Address AF NO.580 & 581| Mettubavi village | Vadasithur Post |Kinnathukadavu Taluk.
The Secretary, Dispute Resolution Panel, 7 Floor. Income Tax Office, BMTC Builiding, 80 feet Road, Koramangala. Bangalore 17 October 2016 Sir' Madam.
Name of Assessee : Jacobi Carbons India Private Limited ( JCB India' or the Assessee' or 'the company ') PAN: AACCJ0987E Assessment year (AY') 2012-13 :- 9 -: ITA No.386/Mds./2017 Subject: Proceedings under Section 133 read with section 143C (2)(b) of the Income Tax Act, 1961 (the Act') & Draft assessment order issues under section I 44C( I) r.s 143(3) of the Act.
Reference: Hearing held on 26th September 2016 and filing of additional evidence During the hearing held on 26 September 2016, the Assessee had pleaded ( in reference to the ground of appeal no. 2 ) that The Transfer Pricing Officer (TPO) should have adopted a methodical approach to arrive at comparables to the Assessee but not a cherry picking, in connection with the international transaction of sale of activated carbon during F.Y 2011-12 (AY 2012-13). In response to the Assessee's request, the Hon'ble Panel had granted an opportunity to file an addtional evidenee in the nature of comparable analysis selecting transactional Net Margin Method TIMM as the most appropriate method. The Assessee submits hereby the details as Aunexure- I to this letter.
We would request you to take the above mentioned submissions on record and provide the Company with (a) an opportunity of being heard, and (b) an opportunity to make additional submissions, if required.
yours faithfully, For Jacobi Carbons India Private Limited Sd/-
Authorised Signatory Encl: As above"
8.1 However, the DRP had not given any findings with regard to selection of comparable under Rule -10D. On the contrary in para No.4.3 to 4.4.2, it has given findings that TPO has his jurisdiction to collect information u/s.133(6) of the Act for the purpose of determining the ALP. However, the crux of the argument of ld.A.R is that the TPO shall follow the due procedure :- 10 -: ITA No.386/Mds./2017 under Rule-10D. As per Section 92D of the Act read with Rule 10D, there should be a scientific search of comparables for the purpose of Transfer Pricing documentation and there cannot be any cherry picking of data in favour of Revenue, by disregarding other comparables, which are in favour of assessee. Further, the TPO has to provide methodology of selection of comparables and the processing through which he selected the comparables.
6. In the present case, that exercise has not been done. In our opinion, if TPO wants to exclude any comparables selected by the assessee or if he wants to include any comparables selected by him due procedure to be followed and opportunity of hearing to be given to the assessee. Since in this case the TPO adopted TNMM as most appropriate method rejecting the CUP Method selected by the assessee in the Transfer Pricing documentation by selecting two companies i.e. M/s.Core Carbons Pvt. Ltd and M/s.Genune Shell Carb Pvt Ltd., as comparables and TPO has not provided any search strategy or search process on the basis of which two companies have arrived at comparables to the assessee. Hence, we remit the issue in dispute to the file of AO to carry out the necessary exercise for selection of :- 11 -: ITA No.386/Mds./2017 comparables, thereafter decide the TP adjustments for denovo.
Since we have remitted the issue to the file of AO, at this stage we refrain from going into other grounds raised by the assessee.
7. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on 12th July, 2017, at Chennai.
Sd/- Sd/-
( जॉज" माथन) (चं पज
ू ार )
(GEORGE MATHAN) (CHANDRA POOJARI)
या)यक सद य/JUDICIAL MEMBER लेखा सद य /ACCOUNTANT MEMBER
चे नई/Chennai
)दनांक/Dated: 12th July, 2017.
K S Sundaram
आदे श क त+ल,प अ-े,षत/Copy to:
1. अपीलाथ /Appellant 3. आयकर आयु.त (अपील)/CIT(A) 5. ,वभागीय त न3ध/DR
2. यथ /Respondent 4. आयकर आयु.त/CIT 6. गाड फाईल/GF